Molina Healthcare Inc · NYSE:MOH
Molina Healthcare — Investor Day (February 2015)
61 slides from Molina Healthcare's investor day presentation, Feb 12, 2015
Slide 1: Investor Day 2015
2015a Investor day February 12, 2015 / new York, new York
Slide 2: Cautionary Statement
Cautionary Statement Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This slide presentation and our accompanying oral remarks contain numerous “forward-looking statements” regarding, without limitation: our future business plans; the expected start dates of our Med
Slide 3: Agenda
Investor day 2015A Agenda Approx. Time Topic Speaker 12:30pm-12:35pm Opening Remarks Juan José Orellana, SVP Investor Relations J. Mario Molina, MD, Chief Executive Officer; 12:35pm-1:20pm Business Overview Terry Bayer, Chief Operating Officer 1:20pm-1:35pm Q&A 1:35pm-1:40pm Break John Molina, Chief
Slide 4: Business overview
2015a Investor day Business overview j. Mario Molina, president & chief executive officer February 12, 2015 / new York, new York
Slide 5: The future
The future We envision a future where every American has access to quality and affordable healthcare C. David Molina, circa 1983
Slide 6: Our mission
Our mission To provide quality health care to people receiving government assistance
Slide 7: One of a kind
One of a kind Flexible health services portfolio (health plans, direct delivery, MMIS) Focused on people receiving government assistance Scalable administrative infrastructure Consistent national brand Seasoned management team Unique culture
Slide 8: Presence in key Medicaid markets
Presence in key Medicaid markets Health plan footprint includes 4 of 5 largest Medicaid markets 2.8M 2 members Puerto Rico1 Molina Health plans Molina Medicaid Solutions Direct delivery 1. On December 8th, 2014 Molina was awarded a managed care contract to administer Puerto Rico’s Medicaid in the Ea
Slide 9: 2014 was a year of great accomplishments
2014 was a year of great accomplishments Last year we made major progress in expanding to new markets and integrating new programs 2014 highlights Florida Acquisitions MMA Duals (CA, Medicaid (SC, FL) IL,OH) Florida Expansion 47% LTC New Puerto revenue growth Mexico Market Rico Centennial Place Care
Slide 10: Medicaid growth due to Medicaid expansion
Medicaid growth due to Medicaid expansion Change in total Medicaid and CHIP enrollment compared to summer 20131 22% 20% 21% Medicaid expansion 18% In effect 16% 15% 10% 13% 14% 15% for All states summer reporting 2013 12% 11% And selected month 7% 9% (49 states) 3% 2% 3% 4% 5% 5% 5% Medicaid expansi
Slide 11: Molina Medicaid expansion
Molina Medicaid expansion Growth to date1 100k 45k 385k 15k 60k Expansion members 110k 55k Sates expanding Medicaid States considering expansion 1. Enrollment as of December 31, 2014
Slide 12: Medicare-Medicaid Plan (MMP) implementations
Medicare -Medicaid Plan (MMP) implementations Dual eligibles Enrollment Jan 20151 California 17K Illinois 5K Michigan Go live 5/15 Ohio 12K South Carolina Went live 2/15 Texas Go live 3/15 Total 35K Contracts awarded to Molina 1. Enrollment described in this column relates to effective membership on
Slide 13: Molina Long Term Services & Support (LTSS) footprint
Molina Long Term Services & Support (LTSS) footprint As of January 2015 Service Areas MMP demonstrations LTSS “stand alone” LTSS and acute care Home and Community- Based Services (HCBS)
Slide 14: Puerto Rico contract award
Puerto Rico contract award One health plan awarded in each region On December 8th, awarded a managed care contract by the Puerto Rico Health San Juan Insurance Administration for the East and Southwest regions Effective date of April 1, 2015 Ponce 350,000 new members expected Southwest Anticipate an
Slide 15: Jacksonville footprint expansion
Jacksonville footprint expansion First Coast Advantage acquisition On December 1st, Molina acquired Medicaid business assets of a Florida Jacksonville health plan, First Coast Advantage service area served by First Coast Advantage Approximately 62,000 members in the Jacksonville area transferred to
Slide 16: Marketplace year two
Marketplace year two 2014 pricing assumed higher medical costs and utilization compared to existing membership 2015 focused on competitive pricing in existing markets Significant sign up activity during 2015 open enrollment
Slide 17: Managing our growth
Managing our growth 2013 2014 2015 2016+ INCUBATE TRANSITION & GROW DEVELOP & GROW FORTIFY Acquire new business Transition members into Transition members into Improve model of care Design systems model of care model of care Enhance systems Test readiness Address pent-up demand Address pent-up deman
Slide 18: Growth story
Growth story Revenue growth Enrollment growth $ Billions Millions CAGR GR 15% 2.6 CA $9.7 26% 1.8 1.9 $5.9 $6.6 1.5 1.6 $3.9 $4.5 FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14
Slide 19: EBITDA evolution
EBITDA evolution Illustrative; not drawn to scale Please refer to the Company’s cautionary statement Admin Cost Care Coordination Leverage Benefits Revenue (Decline in Medical Growth Care Ratio) (Member Mix & Rate Increases) 2014 2016+ EBITDA EBITDA
Slide 20: Government program segmentation
Government program segmentation Increasing complexity Long Term Care $ $ $ $ $ Dual Eligible $ $ $ $ Seniors & Persons $ $ $ with Disabilities Medicaid Expansion $ $ Assistance Temporary to $ Needy Families Number of potential enrollees
Slide 21: Change in patient mix
Change in patient mix Revenue by product CHIP 2% CHIP 2% Duals 2% Marketplace 1% Medicare 3% Medicare Medicare 9% 7% 18% ABD 77% 40% 49% TANF 36% 54% TANF1 TANF ABD ABD 2008A 2013A 2014A Premium Revenue $3.1B $6.2B $9.0B Blended Revenue PMPM $211 $274 $323 1. TANF includes Medicaid Expansion and CHI
Slide 22: 2014 Medical care ratio and revenue
2014 Medical care ratio and revenue By line of business Please refer to the Company’s cautionary statement Medical care ratio 100% 95.8% Revenue $4.0B 89.3% $3.7B 92.3% 92.1% consolidated MCR 90% $3.3B 79.4% 83.7% $3.5B 80% $3.0B 60% S2.5B $2.0B 40% $1.2B $1.5B $1.0B 20% $0.6B $0.5B $0.2B $0.05B 0%
Slide 23: Medicaid enrollment spending
Medicaid enrollment spending Managed care organizations and fee for service FY 2011 Please refer to the Company’s cautionary statement 57M $404B Fee-For-Service 15M 26% $307B 76% 76% of Medicaid spending remains in Fee-for-Service Managed Care 42M 74% $97B 24% Medicaid Enrollment 2011 Medicaid Benef
Slide 24: Medicaid Long Term Services and Supports (LTSS)
Medicaid Long Term Services and Supports (LTSS) Full Medicaid LTSS Spend in 2012: $140 Billion1 6% 3% People with Other/Multiple Serious Mental Populations Illness 30% Developmental People with 61% Disabilities Older People & People with Physical Disabilities 1. Truven Health Analytics. ‘Medicaid Ex
Slide 25: Chronic care and related services
Chronic care and related services Services for ABD and long term care members Medicaid HCBS Expenditures Prevocational services FY 20101 Day habilitation Education services Day treatment/partial hospitalization Other2 Adult day health 14% Group Adult day services living, mental health services: 34%
Slide 26: The landscape: Post ACA
The landscape MORNE Post ACA
Slide 27: Regulation
Regulation 5 - BERMOUNA New CMS Regulations Access Standards \ imum Spending requireret™ Risk Corridors King vs- Burwell 7
Slide 28: Technology
Technology MORNE
Slide 29: Drug spending
Drug spending oo ° . BBRMOHNE i ea:
Slide 30: Drug spending and rising prices
Drug spending and rising prices Drug prices are increasing across all segments of the industry1 Drug spending has increased 10.9% 15% in 2014 11% 10% Hepatitis C and Sovaldi provide important precedent on reimbursement 5% States have acknowledged that these costs are outside our control Combined Bra
Slide 31: Drug spending and rising prices
Drug spending and rising prices Increasing Generic Costs1 Avg. Mkt. Avg. Mkt. Generic spend is trending upward Drug Price Oct Price April Avg. % 2 Increase 2013 2014 Deceptively smaller dollars but large Doxycycline Hyclate $ 20 $1,849 8,281% percentage increase Albuterol Sulfate $ 11 $434 4,014% Po
Slide 32: Strategic priorities
Strategic priorities Mission Priorities Our mission is to provide quality healthcare to Continued revenue growth and people receiving government assistance diversification Care of complex patients Quality Administrative expense Improve profitability We sustain our mission and invest in the organizat
Slide 33: The year ahead
The year ahead Headwinds Tailwinds Delay in state program Medicaid expansion implementations Footprint includes 4 of 5 largest ACA reimbursement Medicaid markets Medical cost pressure associated Uniquely positioned to capture Dual with new contracts/populations Eligible enrollment Flu season Marketp
Slide 34: Q&A
e MOLINA HEALTHCARE Q&A 34
Slide 35: 2015 outlook
2015a Investor day 2015 outlook John c. Molina, chief financial officer February 12, 2015 / new York, new York
Slide 36: Cautionary Statement
Cautionary Statement Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This slide presentation and our accompanying oral remarks contain numerous “forward-looking statements” regarding, without limitation: our new health plan in Puerto Rico; our Marketplace plans’ gro
Slide 37: 2015 and beyond
2015 and beyond 2013 2014 2015 2016+ INCUBATE TRANSITION & GROW DEVELOP & GROW FORTIFY Acquire new business Transition members into Transition members into Improve model of care Design systems model of care model of care Enhance systems Test readiness Address pent-up demand Address pent-up demand Im
Slide 38: Comparison 2014 actual, 2015 outlook
Comparison 2014 actual, 2015 outlook Please refer to the Company’s cautionary statement 2014 2015 Percent Revenue Actual Outlook Variance Premium revenue $9.0B ~$13.4B 49% Health insurer fee revenue $119M ~$260M3 118% Premium tax revenue $294M ~$395M 34% Service revenue $210M ~$185M (12%) Investment
Slide 39: 2015 program and benefit implementation
2015 program and benefit implementation Please refer to the Company’s cautionary statement Assumptions February March April May State/Territory South Carolina Texas Texas Puerto Rico Michigan Program MMP Duals4 MMP Duals3 Nursing Home TANF MMP Duals4 Eligible1 14K 120K 52K N/A 76K Enrollees1 2K 16K
Slide 40: Rate change outlook
Rate change outlook Please refer to the Company’s cautionary statement State Baseline Outlook1 Medicaid Expansion effective Date Rate Change effective Date Rate Change California Jul-15 +1%2 Jan-153/Jul-15 (16%)/0% Florida Sept-15 +3%2 NA NA Illinois Jul-15 0%2 Jul-15 0% Michigan Oct-15 0%2 Oct -15
Slide 41: Medical care ratio by program
Medical care ratio by program Please refer to the Company’s cautionary statement 2014 actuals versus 2015 outlook 100% 96% 95% 94% 94% 92% 92% 92% 90% 89% 89% 87% 84% 2014 actual 85% 84% 2015 outlook 80% 79% 75% 70% TANF ABD Medicare Expansion Marketplace Duals Amounts are estimates – actual results
Slide 42: Revenue by program
Revenue by program Please refer to the Company’s cautionary statement 2014 actuals versus 2015 outlook $ 5B $ 4.6B $ 4.1B $ 4B $3.7B $ 3.3B $ 3B 2014 actual Revenue $ 2.1B $ 2B 2015 outlook $1.2B $ 1.4B $ 1B $0.6B $ 0.6B $ 0.7B $ 0.1B $0.2B $ 0B TANF ABD Medicare Expansion Marketplace Duals Amounts
Slide 43: 2015 ACA fee estimates
2015 ACA fee estimates Please refer to the Company’s cautionary statement Outlook by state/program1 State/Program Fee Tax Effect Total 2 2014 Fee Revenue3 California $17.7M $10.6M $28.3M $11.6M Florida $4.5M $2.8M $7.3M — Illinois $1.1M $0.8M $1.9M — Michigan $16.4M $10.5M $26.9M $6.8M New Mexico $1
Slide 44: Consolidated quality revenue
Consolidated quality revenue Please refer to the Company’s cautionary statement Historical and current outlook – 2015 assumptions Quality Revenue $100M $90M $63M 75% Not recognized 87% 49% Recognized Outlook 2013A 2014A 2015O Totals indicate quality revenue available to be earned for the year specif
Slide 45: General and administrative cost leverage
General and administrative cost leverage Please refer to the Company’s cautionary statement Revenue growth maximizes G&A investment 11% 10.1% 10% G&A Ratio 9% 8.8% 7.9% 8% 7.5% 7% 6% 5% 2012A 2013A 2014A 2015O
Slide 46: EPS reconciliation
EPS reconciliation Please refer to the Company’s cautionary statement Outlook versus adjusted 2015 Outlook1 Net income per diluted share2 $2.35 Non-cash adjustments, net of tax: Depreciation, and amortization of capitalized software $1.33 Amortization of convertible senior notes and lease financing
Slide 47: Long term financial improvement
2015a Investor day Long term financial improvement John c. Molina, chief financial officer February 12, 2015 / new York, new York
Slide 48: 2015 and beyond
2015 and beyond 2013 2014 2015 2016+ INCUBATE TRANSITION & GROW DEVELOP & GROW FORTIFY Acquire new business Transition members into Transition members into Improve model of care Design systems model of care model of care Enhance systems Test readiness Address pent-up demand Address pent-up demand Im
Slide 49: 2017 Financial Objectives
2017 Financial Objectives Please refer to the Company’s cautionary statement How will we get there? Revenue Growth Actuarially sound premium rates ~0.5%-1.5% decline in medical cost ratio Appropriate risk adjustment ~0.5%—1.0% decline in G&A ratio Manage inpatient costs Target: ~1.5%—2.0% after tax
Slide 50: Select medical cost categories
Select medical cost categories Please refer to the Company’s cautionary statement Sensitivity Analysis % PMPM Increase in After Category Decrease Tax Margin Lower Inpatient Costs (2.0%) 0.25% Lower Other Fee -for-Service Costs (1.0%) 0.25% Lower Pharmacy Costs (3.0%) 0.25% Based on 2015 outlook
Slide 51: Top line growth
Top line growth Please refer to the Company’s cautionary statement Key drivers Geographic expansion New member populations / benefits Retaining existing business Geographic expansion and retaining existing business Florida includes both geographic expansion and business retention due to the acquisit
Slide 52: Premium revenue by state then and now
Premium revenue by state then and now 2003: $0.8 billion premium revenue 2014: $9.0 billion premium revenue WI 2% UT WA CA WA 3% 14% 17% FL 42% 5% IL CA TX MI 2% 35% 15% 9% UT 12% OH NM MI 12% 11% SC 17% 4%
Slide 53: Revenue diversification
Revenue diversification Please refer to the Company’s cautionary statement Market diversification mitigates variations in earnings Medical Care Ratio 96% WA MCR 92% 88% CA & WA MCR 84% CA MCR 80% 2010 2011 2012 2013 2014
Slide 54: Addressing chronic care and LTSS takes time
Addressing chronic care and LTSS takes time Please refer to the Company’s cautionary statement MINUS 3 TO MONTH 0 MONTHS 0-6 MONTHS 7-12 MONTHS 13-18 Hire and train staff Adjust staffing Assess and modify staff Right size staff size, skills and Identify, define and address Find the member training f
Slide 55: General and administrative cost leverage
General and administrative cost leverage Please refer to the Company’s cautionary statement Revenue growth maximizes G&A investment 11% 10.1% 10% G&A Ratio 9% 8.8% 7.9% 8% 7.5% 7% 6% 5% 2012A 2013A 2014A 2015O
Slide 56: General and administrative cost leverage
General and administrative cost leverage Please refer to the Company’s cautionary statement Example Revenue G&A Ratio Every $1 billion of incremental revenue: Low High requires between $43 million and $50 2014A 7.9% million of new G&A spend 2015O ~7.5% G&A ratio declines between 10 to 20 $ 1.0B ~7.3
Slide 57: Investment income
Investment income Please refer to the Company’s cautionary statement Interest rate sensitivity on investment income Investment Income EPS $35M $ 2.65 $30M $ 2.60 Each 25bp increase in rates $25M $ 2.55 results in $5M to $20M $6M more of $ 2.50 annualized $15M investment $10M $ 2.45 income $5M $ 2.40
Slide 58: Non-deductible expenses
Non- deductible expenses Please refer to the Company’s cautionary statement After tax margin distortions – for illustrative purposes only Revenue $100.0 Deductible expenses 70.0 Non-deductible expenses 10.0 Significant non-deductible expenses Total expenses 80.0 ACA Health Insurer Fee Pre tax income
Slide 59: Effective tax rate
Effective tax rate Please refer to the Company’s cautionary statement ETR sensitivity to pretax income1 100% 95% Growing pretax income mitigates the impact 90% of non-deductible expenses, lowering the effective tax rate 80% 70% Tax Rate 60% 57% 50% 45% 40% 30% $100M $200M $300M $400M $500M $600M $70
Slide 60: After tax margin sensitivity
After tax margin sensitivity Please refer to the Company’s cautionary statement Each 25bps increase in after tax margin increases EPS by $0.70 $10.00 $8.00 $6.00 $5.72 EPS $4.00 EPS $2.35 $2.00 $0.00 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% After Tax Margin Based on 2015 Outlook
Slide 61: Q&A
e MOLINA HEALTHCARE Q&A 6